Post navigation

More Wall Street Corruption

Data analytics software maker Splunk Inc’s shares doubled in value on their market debut, as it tapped investor demand for enterprise-focused companies in an otherwise weak IPO market.
Technology companies such as Splunk, Demandware Inc and Guidewire Software Inc have been doing well at the markets, even as investors shun other deals.

So you build a company, and finally you take it public, You hire an investment bank to shepherd the deal for you. This involves setting the right price and lining up buyers. They talk to various funds and get advance orders for chunks of the stock.
Let’s say you are selling 1 million shares, and the price at the IPO is set to $10. That means you raise $10 million. You pay the fees, etc, and the company has some capital to use.
So the day of the IPO the stock jumps to $20. Sounds GREAT, right? Well, actually, that means that the company could have raised $20 million, but only raised $10 million. SOMEONE got that other $10 million, though. And the investment bank you hired was supposed to set the price correctly…
Do you see where this is going? You can be 99% certain that the “someone” who took off with the missing $10 million has something to do with the investment bank that enabled the $10 million to be available this way.